Paytm Drops 5% Following 2.5% Block Deal

Shares of One97 Communications, the owner of Paytm, witnessed a nearly 5% plunge on 24, November, following the block deal of 2.56% stake worth ₹1,441 crore changed hands at an average price of ₹884 per share. The identity of the buyers and sellers remains undisclosed. The stock hit a low of ₹880 per share, marking a 4.6% intraday decline. At 9.15 am, it was trading at ₹884 per share, down close to 5% from the previous close.

Regulatory Impact on Paytm

Recent regulatory changes by the Reserve Bank of India (RBI) affecting consumer lending norms have drawn attention to Paytm. According to CLSA analysts, there is a belief that these regulations could have an impact on fintech intermediaries like Paytm, although the overall effect may not be limited.

Jefferies has also expressed concerns, suggesting that the tightening of norms and the increase in interest rates by banks might affect Paytm's earnings, potentially leading to partner restrictions. However, BofA Securities believes the overall impact on Paytm's FY25E EBITDA is likely to be lower than 5%

Financial Performance and MSCI Inclusion

Paytm recently disclosed its Q2 FY24 consolidated revenue of ₹2,519 crore, a 32% increase from ₹1,914 crore to previous year. The company's improved payment processing margins and loan disbursement growth contributed to this surge, resulting in reduced losses. Additionally, Paytm's inclusion in the MSCI Global Standards Index has sparked interest, with potential inflows estimated at around $140 million to $162 million.

Analysts' Outlook

Despite regulatory concerns, Paytm has seen a robust rally this year, with a 70% year-to-date increase in its share price. Foreign brokerage firm Jefferies expects Paytm to turn profitable in the next four quarters, emphasizing its potential to become one of the few large and profitable fintechs globally. CLSA and Citi have maintained 'buy' ratings, with target prices of ₹1,200 and ₹1,300, respectively, while Morgan Stanley maintains an equal-weight rating with a target price of ₹830.

Final Words

Paytm's stock, after a 2.25% dip in the past month, has shown mixed performance over different time frames. With a commendable 25% return in the last six months and an impressive 103% growth in the past year, the stock has demonstrated positive trends. However, a broader analysis, considering the maximum time frame, reveals a decline of 42% from its all-time high near ₹1782.